What to consider before paying off the mortgage?

Sg28

Its a great situation to be in in your 30s. 

For me at 40, I have roughly £110k remaining mortgage. 2 parts one ends in 6 years at 2.5% and one ends in September 2.29%. I have around £150k in savings plus some investments. 

So the simple maths for me is, pay part 1 of the mortgage off in september. Before the rate rises to more than savings rates. 

Leave part 2 offset with the money earning more interest than the mortgage charges. Until that deal ends and pay that off too. 

I would like to just clear the whole thing and if it wasnt for the erc I probably would pay it all off, even though its not the absolute best option financially. 

Zerforax

If you're not on a fixed mortgage deal, I would decide on your rainy day fund amount (whether 10k-20k-40k etc) and pay off the mortgage with the rest. You said you've already done the big purchases so unless you've got something else in mind, there isn't much point in holding onto so much cash? Presume you have insurance policies (home, car, life etc) for any serious life events. With a much lower mortgage repayment amount, your savings will also ramp up again quicker.

phillw

I would apply for a long 0% purchases credit card, to cover you for any potential emergencies (extra expense, loss of income etc).

Then put as much as you dare into the mortgage. I try to avoid having enough savings that I would not be allowed to claim benefits for example.

BooJewels

Having lived most of my adult life without either - I can tell you that there are two things that feel fabulous financially - being mortgage free and also having an emergency fund in case something breaks or events happen that will be costly.

So I'm with others - keep an emergency fund on hand - say £20k - and pay the rest of your savings off your mortgage.  Then discipline yourself to either continue making the same increased mortgage payments off it to clear the balance (it might not be do-able) or put that same money aside each month until you have enough to clear the balance of the mortgage.  This latter bit might be where it's more advantageous to add it to your savings pot, if the interest it earns is better than the mortgage - you'll need to do some maths to see what works best.

hanb2

Thanks all.

I think we'll probably pay off a good chunk now, keep the rest as an emergency fund and keep saving to pay the rest off as soon as we can. 

Whilst I understand the tax benefits of maxing pensions, to be mortgage free in late 30's and then being able to put that additional money towards pension and anything else for later on seems to make more sense to me than continuing with the large monthly expense of a mortgage and paying interest. We will continue to get the max we can from pensions in the meantime but there's no guarantee we'll make it to pension age and so having the knowledge of minimal outgoings and no mortgage should we lose jobs etc feel a more secure prospect. 

Really appreciate all of your input!  

Albermarle

We will continue to get the max we can from pensions in the meantime but there's no guarantee we'll make it to pension age and so having the knowledge of minimal outgoings and no mortgage should we lose jobs etc feel a more secure prospect. 

Quite probably you have made the right decision. However just to react to your comment in bold for future consideration.

There is no guarantee you will not die tomorrow. However statistically it is highly unlikely you will die before you are 60 ( most non state pensions should be available for you to take at 60 at the latest). The average life expectancy in the UK for someone of your age  is around 84, which means 50% will live longer than that.

There are two common mistakes people make when thinking about retirement.

1) They underestimate how much money they need to build up in pensions and other assets, especially if they want to retire comfortably and/or retire early

2) They underestimate their likely longevity. 

hanb2

Albermarle said:

We will continue to get the max we can from pensions in the meantime but there's no guarantee we'll make it to pension age and so having the knowledge of minimal outgoings and no mortgage should we lose jobs etc feel a more secure prospect. 

Quite probably you have made the right decision. However just to react to your comment in bold for future consideration.

There is no guarantee you will not die tomorrow. However statistically it is highly unlikely you will die before you are 60 ( most non state pensions should be available for you to take at 60 at the latest). The average life expectancy in the UK for someone of your age  is around 84, which means 50% will live longer than that.

There are two common mistakes people make when thinking about retirement.

1) They underestimate how much money they need to build up in pensions and other assets, especially if they want to retire comfortably and/or retire early

2) They underestimate their likely longevity. 

Thanks and agreed! We definitely will keep contributing to pensions and, despite getting the maximum from employers currently, once we’re rid of the mortgage and we can up our contributions even more so and focus on longer term savings which, for some reason, makes more sense in my mind for where we are currently.

MX5huggy

Don’t make sense in your mind. Fire up a spread sheet and work the number through. 

phillw

hanb2 said:

Whilst I understand the tax benefits of maxing pensions, to be mortgage free in late 30's and then being able to put that additional money towards pension and anything else for later on seems to make more sense to me 

Being mortgage free is not necessarily a good thing from a money saving perspective, because you might let it influence your purchasing decisions.

You probably should look at buying a bigger house.

Hopingforthesimplelife

phillw said:

hanb2 said:

Whilst I understand the tax benefits of maxing pensions, to be mortgage free in late 30's and then being able to put that additional money towards pension and anything else for later on seems to make more sense to me 

Being mortgage free is not necessarily a good thing from a money saving perspective, because you might let it influence your purchasing decisions.

You probably should look at buying a bigger house.

Interested in this train of thought.

is this more from a human physiological point of view that if we allow ourselves to be “too comfortable”, it will affect our behaviour and not continuing to push as hard as we might otherwise would (or in different circumstances, would have to)? Ie rather than pushing for promotion at work, or changing for a better job, we allow ourselves to settle, go part time or other outcome that might make us happier, but less wealthy?